Question

Use the following table for 2-4.  Assume that all labor units are paid equally.

            L          Q         FC       VC      TC       MC      AFC    AVC   ATC

            ==============================================

            0           0                                A         --         --          --        --

            1           4                    

            2          10                    60                      C

            3          15                                150                                 B

2. What is the value of A?

            a)  $0

            b)  $30

            c)  $60

            d)  $210

            e)  none of the above is correct

3. What is the value of B?

            a)  $6

            b)  $10

            c)  $30

            d)  $45

            e)  none of the above is correct

4. What is the value of C?

            a)  $5

            b)  $6

            c)  $15

            d)  $30

            e)  none of the above is correct

Answer 1

Formula's Used:

Total Cost = Fixed Cost + Variable Cost, Variable Cost = Labour Unit * Cost of 1 labour

Marginal Cost is the difference between the total cost. To find all the above average costs, we have divided the cost by quantity, for example, to find ATC we divided the total cost by quantity.

In the given table, the total variable cost 60 was given when labour units were 2, so dividing them we get cost of per labour which is 30. From this, we are able to calculate all the variable cost and when labour units were 3, our total variable cost will become 90 i.e.30*3. Subtracting 90 from total cost 150, we are able to determine the fixed cost 60 i.e. 150 - 90.

From the above-mentioned formulas, we can easily calculate all other remaining variables.

Now, with the help of the table, we can answer all the given three questions.

2). The value of A is $60. At point A, the output is zero so the variable cost will be zero. At zero output, the firm's only cost will be fixed cost which is $60 here. Hence, the correct answer is Option C.

3). The value of B is 6. Hence, the correct answer is Option A.

4). Marginal Cost at 2 labour units is 30. Hence, the correct answer is Option D.